Opec rules out oil production cuts

Sunday 15 March 2009 16.10 EDT
First published on Sunday 15 March 2009 16.10 EDT

Opec members today decided to stick more strictly to existing production curbs rather than pushing for further cuts in output. The move will be greeted with relief by oil consuming nations concerned that further production cuts would have pushed prices higher and damaged hopes of a global economic recovery.

The oil producer group will meet on 28 May, in a gathering called ahead of a scheduled meeting in September, to give ministers a further opportunity to review their strategy.

Ahead of today's meeting in Vienna the International Energy Agency said cheaper oil had represented a trillion-dollar financial stimulus for the global economy. Later David Fyfe, head of the oil industry and markets divisions at the IEA, said: "I think generally speaking it's a sensible decision and one that the IEA could welcome given the strains that are being faced by the global economy.

"The last thing we need in the short term is an abrupt surge in oil prices."

Phil Flynn at Alaron Trading in Chicago also welcomed the move and said that while it would mean lower prices in the short term it would subsequently boost demand. "It looks like Opec is finally kicking in with their economic stimulus. It's about time. I think the Saudis had their way. They were tired of carrying the load for the cartel. Other factors that might have influenced the Saudis were a stronger dollar and pressure from the Obama administration. This will lead to lower prices, but I think the stimulus to the economy will help increase demand for oil down the road."

Ahead of the meeting Saudi Arabian oil minister Ali al-Naimi emphasised output discipline. "Compliance is very good. We'd like to see compliance as high as possible. It is over 80% now, it can be better."

But he made it clear the current price was not enough to encourage production. "If you want the marginal producers to produce, all the guys that are shutting down their wells now, they need something about $70-$75 [a barrel]. Everybody would be happy."

Others had been pressing for a tougher response to boost prices. Algeria's energy and mines minister, Chakib Khelil, said Opec needed to take action on two fronts. "Both … comply and cut," he said

The world's largest non-Opec producer, Russia, had already said its companies would back any Opec cut. "The risk of a further decrease of the oil price is unfortunately extremely high," deputy prime minister Igor Sechin said before the Opec decision was announced.